SEBI Standardizes Framework for Net Distributable Cash Flows by REITs and InvITs

In a move aimed at fostering a more conducive environment for business operations, SEBI has through circulars announced a comprehensive standardization of the framework for calculating the available Net Distributable Cash Flows (NDCF) by Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and their respective holding companies.
 
NDCF is a financial metric that represents the cash generated by a business or investment that is available for distribution to its investors or shareholders after deducting certain expenses and reserves.
 
Presently, the REITs and InvITs regulations provide that NDCF will be calculated at the HoldCo / SPV level. However, the regulations do not prescribe any standardised framework for calculation of the NDFC. The new framework, set to take effect from April 1, 2024, is detailed in two separate circulars issued by SEBI.
 
Under the stipulated regulations, a minimum distribution of 90% of the NDCF at both the Trust level and the HoldCo / SPV level is mandated. This distribution is subject to the applicable provisions outlined in the Companies Act or the Limited Liability Partnership Act.
 
SEBI emphasized that the option to retain 10% of the distribution must be calculated by consolidating the retention made at the SPV level and Trust level. Further, in relation to the 10% retention SEBI has provided the manner of calculation while taking into account the NDFC at SPV and Trust level.
 
The circulars have further clarified that proceeds from sale of assets which are to be reinvested could be temporarily parked in Overdraft accounts or used to repay any additional / unrelated debt. However, if such proceeds are not intended to be reinvested, they should be distributed back to the unitholders.
 
This move follows SEBI‘s recent introduction of detailed procedures addressing unclaimed funds of investors held by entities with listed non-convertible securities, REITs, and InvITs. These regulatory measures collectively aim to enhance transparency, accountability, and efficiency in the functioning of capital market and investment instruments.
 
Both the SEBI Circulars available on SEBI website and are also enclosed below.
 
Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com.